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Date: 04-22-2019

Case Style:

Tai Matlin and James Waring v. Spin Master Corp

Case Number: 18-2868

Judge: Kanne

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney:

Defendant's Attorney:

Description:




Tai Matlin and James Waring appeal
the district court’s dismissal of their suit against Spin Master
Corporation, Spin Master Ltd., and Swimways Corporation
for lack of personal jurisdiction and improper venue. Because
2 No. 18-2868
the defendants have insufficient contacts with Illinois to establish
specific personal jurisdiction, we affirm.
I. BACKGROUND
Along with other business partners, two Illinois residents,
Tai Matlin and James Waring, co-founded a company called
Gray Matter Holdings, LLC, in 1997.1 Matlin and Waring developed
certain products for Gray Matter, including an inflatable
beach mat known as the “Snap-2-It” and a radio-controlled
hang glider called the “Aggressor.”
In 1999, after learning that the company faced failure, Matlin
and Waring entered into a Withdrawal Agreement with
Gray Matter wherein they sold their partnership shares of the
company and forfeited their salaries. The Withdrawal Agreement
also included a provision that assigned Matlin and Waring's
intellectual property and patent rights to Gray Matter,
but entitled them to royalties on the sale of the products. In
the years following the Withdrawal Agreement, Matlin and
Waring frequently brought Gray Matter to arbitration to enforce
their royalty rights.
In 2002, Gray Matter filed an assignment of the products’
intellectual property rights with the United States Patent and
Trademark Office. Matlin and Waring allege that Gray Matter
filed the assignment without their knowledge and that the
company forged Waring's signature on the paperwork. The
following year, Gray Matter sold assets to Swimways, including
the patent rights to Matlin and Waring’s products. A 2014
binding arbitration between Gray Matter and the plaintiffs
1 Although Gray Matter eventually changed its name to 180s LLC, we
refer to it as “Gray Matter” for clarity.
No. 18-2868 3
determined that Gray Matter did not assign the Withdrawal
Agreement to Swimways upon sale of the products and that
the plaintiffs were owed no further royalties. Accordingly,
Swimways never paid royalties to Matlin or Waring. Then in
2016, Spin Master acquired Swimways and the intellectual
property rights at issue here.
In 2017, Matlin and Waring filed this suit against Swimways,
Spin Master Corp., and Spin Master Ltd. in the Northern
District of Illinois. They argued they were still entitled to
royalties for the products and brought claims of fraud and
breach of contract against Swimways, and unjust enrichment
against all defendants. Swimways is a Virginia corporation
with its principal place of business in Virginia Beach. The Spin
Master defendants are Canadian companies with their principal
places of business in Toronto. None of the defendants are
registered to conduct business in, have employees in, or have
registered agents for service of process in Illinois.
The defendants moved to dismiss Matlin and Waring’s
complaint under Federal Rule of Civil Procedure 12(b)(2) for
lack of personal jurisdiction and Rule 12(b)(3) for improper
venue. The defendants submitted declarations from their respective
corporate officers in support of their motion, outlining
how the companies lacked sufficient contact with Illinois
to establish personal jurisdiction. In response to defendants’
motion to dismiss, plaintiffs’ counsel submitted an online
purchase receipt from Swimways’ website and a declaration
stating that he purchased and received a single patented
product in Illinois. Matlin and Waring believed that, along
with the complaint’s allegations, this purchase of a royaltygenerating
product sufficiently established personal jurisdiction
over the defendants.
4 No. 18-2868
The district court rejected Matlin and Waring’s argument
and granted the defendants’ Motion to Dismiss. The court determined
that because Matlin and Waring asserted only common
law claims against the defendants, Illinois law governed
whether it had personal jurisdiction over the defendants. The
court then turned to the Illinois Long Arm Statute and the
state’s case law to determine whether asserting personal jurisdiction
over the defendants would violate their right to due
process. Accordingly, it held that the defendants had insufficient
contacts with Illinois to establish either general or specific
personal jurisdiction in that state. The defendants subsequently
filed a Motion for Sanctions against plaintiffs under
Federal Rule of Civil Procedure 11.
Matlin and Waring appealed the court’s dismissal. We
note that defendants’ Motion for Sanctions against Matlin and
Waring, pending before the district court, has no impact on
our jurisdiction over Matlin and Waring’s appeal. See Cleveland
v. Berkson, 878 F.2d 1034 (7th Cir. 1989).
II. ANALYSIS
On appeal, Matlin and Waring argue that the district court
erred in holding that it had no personal jurisdiction over the
defendants. Specifically, they maintain that the defendants established
sufficient contacts in Illinois by selling the royalty generating
products online and shipping them into the state.
Additionally, they believe that the district court misinterpreted
our case law in the wake of Walden v. Fiore, 571 U.S. 277
(2014). Plaintiffs also appeal the district court’s dismissal for
improper venue. Because we agree that the district court had
no personal jurisdiction over the defendants, we do not address
the venue issue. See 28 U.S.C. § 1391(b)(3) (venue can be
proper where the court has jurisdiction over the defendants).
No. 18-2868 5
We review dismissal for lack of personal jurisdiction de
novo. Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010).
Matlin and Waring bear the burden of establishing personal
jurisdiction. Id. Where, as here, the defendants submit evidence
opposing the district court’s exercise of personal jurisdiction,
the plaintiffs must similarly submit affirmative evidence
supporting the court’s exercise of jurisdiction. Purdue
Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th
Cir. 2003). When the district court bases its determination
solely on written materials and not an evidentiary hearing,
plaintiffs must only make a prima facie showing of personal
jurisdiction over the defendants to survive their motion to dismiss.
Id. “[W]e take as true all well-pleaded facts alleged in
the complaint and resolve any factual disputes in the affidavits
in favor of the plaintiff[s].” Tamburo, 601 F.3d at 700.
A. Due Process Requirements for Specific Personal Jurisdiction
Because Matlin and Waring bring claims based in state
common law, “a federal court sitting in Illinois may exercise
jurisdiction over [the defendants] in this case only if authorized
both by Illinois law and by the United States Constitution.”
be2 LLC v. Ivanov, 642 F.3d 555, 558 (7th Cir. 2011). To
that end, the Illinois Long Arm Statute provides that courts
may exercise jurisdiction on any basis allowed by the due process
provisions of the Illinois and federal constitutions. See
735 Ill. Comp. Stat. 5/2-209(c). The district court may exercise
jurisdiction only if both constitutions’ due process requirements
are met. Illinois v. Hemi Group LLC, 622 F.3d 754, 756
(7th Cir. 2010).
We previously observed that although the Illinois Constitution
may theoretically provide greater due process protections
for nonresident defendants, no Illinois case has
6 No. 18-2868
provided a definitive explanation of the differences between
federal and Illinois due process. See Hemi Group, 622 F.3d at
757; see also Russell v. SNFA, 2013 IL 113909, ¶ 32 (“[T]here
have been no decisions from [the Illinois Supreme Court] or
the appellate court identifying any substantive difference between
Illinois due process and federal due process on the issue
of a court's exercising personal jurisdiction over a nonresident
defendant.”); see also Jeffrey S. Sutton, 51 Imperfect Solutions:
States and the Making of American Constitutional Law 8
(2018) (noting that, like many other fundamental rights, due
process rights originated in state constitutions and that parties
in federal courts usually neglect arguments based on state
constitutional grounds). Because neither party here urges that
the Illinois due process analysis differs, we only consider the
requirements of federal due process.
“The Due Process Clause of the Fourteenth Amendment
constrains a State’s authority to bind a nonresident defendant
to a judgment of its courts.” Walden, 571 U.S. at 283. A nonresident
defendant generally must “have certain minimum
contacts” with the forum state “such that the maintenance of
the suit does not offend ‘traditional notions of fair play and
substantial justice.’” Intʹl Shoe Co. v. Washington, 326 U.S. 310,
316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940));
Walden, 571 U.S. at 283.
Although two types of personal jurisdiction (general and
specific) exist, the parties agree that only specific personal jurisdiction
applies here. For specific personal jurisdiction, “the
defendant[s’] contacts with the forum state must directly relate
to the challenged conduct or transaction.” Tamburo, 601
F.3d at 702; see also Walden, 571 U.S. at 283–84. “Specific personal
jurisdiction is appropriate where (1) the defendant has
No. 18-2868 7
purposefully directed his activities at the forum state or purposefully
availed himself of the privilege of conducting business
in that state, and (2) the alleged injury arises out of the
defendant's forum-related activities.” Tamburo, 601 F.3d at 702
(citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)).
The second element is crucial—and “[w]e cannot simply aggregate
all of a defendant's contacts with a state—no matter
how dissimilar in terms of geography, time, or substance—as
evidence of the constitutionally-required minimum contacts.”
RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1277 (7th Cir.
1997).
In Hemi Group and other cases, we cautioned that courts
“should be careful in resolving questions about personal jurisdiction
involving online contacts to ensure that a defendant
is not haled into court simply because the defendant owns or
operates [an interactive] website that is accessible in the forum
state.” 622 F.3d at 760; be2 LLC, 642 F.3d at 558; Advanced
Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc., 751
F.3d 796, 803 (7th Cir. 2014). For a court performing a minimum-
contacts analysis for personal jurisdiction purposes,
“[t]he relevant contacts are those that center on the relations
among the defendant, the forum, and the litigation.” Advanced
Tactical Ordnance Sys., 751 F.3d at 801. The record must show
that the defendants targeted the forum state. be2 LLC, 642 F.3d
at 558–59.

B. The District Court Properly Distinguished Hemi Group
Plaintiffs rely heavily on language in our decision in Hemi
Group to support their claim that personal jurisdiction exists
in this case. In Hemi Group, we held that a New Mexico cigarette
distributor who sold over 300 packages of cigarettes to
an Illinois Department of Revenue agent through an
8 No. 18-2868
interactive website over the course of multiple years was subject
to personal jurisdiction in Illinois. 622 F.3d at 760. Our
opinion noted that Hemi Group’s website expressed a willingness
to sell in all states but New York, which indicated that
it would sell in the Illinois marketplace. Id. at 755-56. But (at
least) three significant factors distinguish this case from Hemi
Group and support the district court’s dismissal.
The first is the scale of contact with Illinois. Hemi Group
involved a defendant’s systematic contact with the forum
state through repeated sales of a regulated product over a period
of multiple years, not a single incident conjured up by
the plaintiffs’ attorney for the exclusive purpose of establishing
personal jurisdiction over the defendants. See also Russell,
2013 IL 113909, ¶ 68 (“[S]pecific jurisdiction should not be exercised
based on a single sale in a forum, even when a manufacturer
or producer ‘knows or reasonably should know that
its products are distributed through a nationwide distribution
system that might lead to those products being sold in any of
the fifty states.” (citing J. McIntyre Mach., Ltd. v. Nicastro, 564
U.S. 873, 890–91 (2011) (Breyer, J., concurring in judgment)).
Second, the relationship between the defendants’ conduct
and the State differs significantly. In Hemi Group, the defendant’s
systematic contact with Illinois involved unregistered
sales of a regulated product, tobacco, in violation of state law.
There, the defendant’s offending activities significantly related
to the forum state and its laws. Here, however, the plaintiffs
bring claims with an attenuated relationship to Illinois
and any sales that occurred there. In other words, this case is
not “a suit arising out of or related to the defendant[s’] contacts
with the forum.” Helicopteros Nacionales de Colombia, S.A.
v. Hall, 466 U.S. 408, 414 n.8 (1984). For example, this is not the
No. 18-2868 9
type of case where the defendants sold and shipped a defective
product into Illinois that injured residents there. Rather,
this dispute involves an out-of-state defendant’s refusal to
pay royalties on sales made nationwide. The Illinois sales are
not the issue here. The royalty claims derive from a nonparty’s
contractual obligation and the defendants’ alleged
complicity in supposed fraud committed by that non-party.
The underlying contracts include forum selection and choice
of law clauses (which do not select or choose Illinois). The defendants’
actions of paying or not paying royalties more appropriately
relate to Virginia—where Swimways makes business
decisions at its headquarters.
Third, the Hemi defendant’s contacts with Illinois occurred
over a period of time before the state filed suit. In this case,
Matlin and Waring attempted to salvage personal jurisdiction—
after the defendants moved to dismiss—by luring them
into shipping a product into Illinois. Because specific personal
jurisdiction derives from the plaintiffs’ relevant contacts with
the forum, we cannot allow plaintiffs to base jurisdiction on a
contact that did not exist at the time they filed suit. The plaintiffs’
tactics flout the due process limitations on personal jurisdiction,
which restrict courts’ jurisdiction over certain defendants
if haling them into court would “offend traditional
notions of fair play and substantial justice.” Intʹl Shoe, 326 U.S.
at 316; Hemi Group, 622 F.3d at 757. We reject the argument
that “fair play” includes a scenario where plaintiffs sue defendants
in an unfamiliar forum and the district court permits
the plaintiffs’ attorney to create jurisdiction, ex post facto, from
a single online purchase.
We conclude that the district court correctly declined to
exercise personal jurisdiction over the defendants. As we
10 No. 18-2868
previously explained, in a minimum contacts analysis “[t]he
relevant contacts are those that center on the relations among
the defendant, the forum, and the litigation.” Advanced Tactical
Ordnance Sys., 751 F.3d at 801. The defendants’ alleged objectionable
conduct in this case—failing to pay Matlin and Waring
royalties on the products—has little to do with Illinois.
Matlin and Waring essentially argue that their attorney’s
online purchase of a single royalty-generating product caused
an Illinois-based harm that connects to the defendants’ eventual
non-payment of that royalty. But even if we accepted that
a single online sale provided a sufficient link to the royalty
dispute, Matlin and Waring face another problem. Here the
plaintiff-initiated contact arose after the plaintiffs filed suit—
solely to lure the defendants into Illinois to establish personal
jurisdiction over them. The defendants did not target Illinois
and should not be subject to suit there. See be2 LLC, 642 F.3d
at 558–59 (“If the defendant merely operates a … ‘highly interactive’
website, that is accessible from, but does not target,
the forum state, then the defendant may not be haled into
court in that state without offending the Constitution.”).

Outcome: III. CONCLUSION
Based on the foregoing, we believe the district court correctly
dismissed plaintiffs’ claims for lack of personal jurisdiction
over the defendants. AFFIRMED.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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